A Body Blow To Illegal Labor?

Court rulings and legislation could change the game for companies such as Mohawk

It could soon be high noon in Calhoun. The town of 13,000 tucked away in the northwest corner of Georgia has been reshaped during the past decade by a huge influx of Latinos. The big draw: jobs at Mohawk Industries Inc. (MHK ), the town's largest employer. The $6.6 billion carpet maker employs 32,000 workers in all, 4,000 of them in Calhoun and surrounding Gordon County. Once staffed largely by whites, Mohawk today has a workforce made up substantially of immigrants from Mexico and other Latin American countries. The lure of $7-an-hour work has helped lift Hispanics to 12% of Gordon's population today, up from less than 1% in 1990.

Increasingly, some Anglos, as many locals call themselves, are feeling threatened by the newcomers. Drive past Calhoun's quaint downtown courthouse, and you'll see new Latino-owned shops and restaurants, such as La Hacienda and La Tienda Guadalupana, lining the streets. Spanish is so prevalent that Taxi Domingo feels compelled to reassure white customers by putting advertisements on its cabs that say: "We speak English!" Says Gary White, a deacon of the local Agape Baptist Church: "The numbers [of immigrants] and the language are a problem." On Mar. 12 his church hosted Race Relations Day as part of an ongoing dialogue on the clash of cultures.

Now Calhoun finds itself in the middle of the nation's heated debate over illegal immigration. Two years ago tensions between immigrant and local workers at Mohawk Industries spilled into the courts in a case that could affect all companies employing some of the estimated 7 million illegal aliens working in the U.S. Four current and former Mohawk workers brought a class action against the company for allegedly conspiring to depress their wages by hiring illegal immigrants. Filed in federal court, the suit alleges that Mohawk, sometimes with help from local hiring agencies, knowingly accepted false documents, recruited illegals at the U.S.-Mexico border, and rehired undocumented workers under different names. "To the managers of Mohawk, the influx of illegals is a dream," charges Bobby Lee Cook, a local lawyer representing the workers. "To others, it might be the apocalypse."

In its legal briefs, Mohawk denies all the allegations. But the suit poses a threat to U.S. business because it was filed under the Racketeer Influenced & Corrupt Organizations Act (RICO), a 1970 law passed to fight the Mafia that assesses triple damages against those found to be in violation. Congress amended the statute in 1996 to allow workers to sue corporations that knowingly hire illegal workers. Three similar lawsuits are working their way through the federal courts.

In Mohawk's case, two lower courts refused to dismiss the plaintiffs' complaint, and now the U.S. Supreme Court plans to hear Mohawk's appeal on Apr. 26. The high court won't consider the underlying allegations. Instead, it will decide whether RICO could apply to companies in this situation.

If the court rejects Mohawk's defense, "companies would essentially be converted into law enforcement agencies," says Juan P. Morillo, a Mohawk attorney at Sidley Austin LLP. Mohawk declined to discuss the case but issued a statement through Morillo, arguing that the plaintiffs want to force employers to limit or avoid hiring Spanish-speaking employees. "Mohawk intends to stand firm in its resistance to these extortionate litigation tactics," says the statement.


The Mohawk suit is coming to a head just as moves to combat illegal immigration reach a crescendo in the courts, Congress, and state legislatures (table). Many of these efforts would get tough on employers that hire illegals. Plaintiffs' lawyers are pursuing other RICO-based suits, including one filed in 2003 against Wal-Mart Stores Inc. (WMT ), and such initiatives would get a boost if Mohawk loses in the Supreme Court. Meanwhile, Congress is embroiled in an acrimonious debate about bills requiring employers to validate workers' Social Security numbers, as well as demands by Senator John McCain (R.-Ariz.) and others to extend some kind of legality to the nation's illegal workforce (table, page 88). State legislatures are considering their own laws. "We are close to passing an enforcement-only regime that seeks to solve the illegal immigration problem largely on the backs of employers," says John Gay, senior vice-president for government relations at the National Restaurant Assn.

Business groups acknowledge that some kind of crackdown is inevitable. For years, lax federal and state enforcement of existing laws has given employers virtual carte blanche to hire illegals. Just four notices of intent to fine employers of unauthorized workers were issued in 2004, down from 417 in 1999, according to the Government Accountability Office. If that now changes, the result would be a catch-22 for employers that want to stay in the U.S. but have grown dependent on cheap, illegal labor as a way to remain globally competitive. A Mar. 8 report from the Pew Hispanic Center estimates that undocumented immigrants account for 24% of the country's agricultural workers, 14% of construction jobs, and 9% of manufacturing occupations.

That's why the toll of immigration reform could potentially be seismic for Calhoun and Mohawk. The town has an unemployment rate of 4.3%, below the national average of 4.8%, so the hunt for able-bodied workers is already intense, say local officials. At Mohawk, a large majority of the workforce in its 26 Georgia plants is illegal, alleges the lawsuit, which was brought by Howard W. Foster, an attorney at Johnson & Bell Ltd. in Chicago who pioneered the use of the RICO Act to sue companies alleged to hire undocumented workers. Mohawk attorney Morillo says that the company's Latino workforce is "large" but says the company doesn't probe the validity of Social Security numbers and other worker documents. Says pastor Stephen H. "Esteban" Edwards, coordinator of ethnic ministries of the Gordon County and Memorial Baptist Assns.: "If there were a housecleaning of Hispanic immigrants, [Calhoun] would collapse." Most of his members are Hispanic, some illegally in the U.S., he says.

Despite Mohawk's denials, the lawsuit alleges that the company hires many of its workers through local temporary help agencies. The $7 starting wage is a sore point for some locals and white Mohawk workers, who say Latinos' willingness to accept low pay depresses overall pay rates. "If a lot of them weren't here, our wages would be higher," says a 10-year veteran at Mohawk who earns $15.65 an hour in the maintenance group. Mohawk says in its statement that it pays competitive wages.

Plaintiffs' attorneys allege that Mohawk goes to great lengths to hide illegal immigrants on its payroll. In 2004, according to the complaint, the company fired three illegal workers. But two months later, "Mohawk rehired these same employees under different names to work on different shifts in the same facility," the complaint alleges. During government raids, say the plaintiffs, some illegals hid in barrels or ran from factories. Mohawk denies the allegations.

Federal legislation requiring Mohawk and other U.S. employers to scrutinize the Social Security numbers and immigration status of all workers could add to companies' hiring woes. A voluntary program operated by the U.S. Citizenship & Immigration Services (USCIS) known as the Basic Pilot, has garnered little support from business. Only 2,900 of the nation's estimated 7 million employers participate in the program. And the government is ill-prepared to handle more. Of 73,000 employee checks referred to USCIS last year, a third required case officers to investigate further because the agency lacked sufficient data about employees' status.

Companies that have volunteered for the pilot say the reporting mechanisms are flawed. Giant chicken processor Tyson Foods Inc. (TSN ), which joined in 1998, says the program helps verify Social Security numbers, but it cannot identify immigrants who may have assumed other people's names and personal data. "We believe companies should not be placed in the role of policing who has proper work documentation," says Tyson spokesman Gary Mickelson in a statement. Tyson was able to defeat a RICO suit brought by the Justice Dept. similar to the one Mohawk is fighting.


Even as they await a ruling on Mohawk's case, some in Calhoun are growing worried that an immigration crackdown, through the courts or Congress, could have a lasting effect on the town. With a dearth of workers in the region, Hispanics are crucial if the city's No. 1 employer is going to keep production from moving elsewhere. Calhoun Mayor Jimmy Palmer boasts that Mohawk retained or added 900 jobs in Gordon County last year, in part because it could find new employees. The effect of a crackdown "would be very, very significant and very, very costly," says Bert Lance, a Calhoun native and former head of the Office of Management & Budget under former President Jimmy Carter. "It would be a two-front battle: checking on current workers and replacing [those] who leave."

The debate is rippling through state capitals, too. Legislators from Georgia to Arizona are facing off, often split between business supporters and those eager to tamp down illegal labor. A bill expected to pass soon in the Georgia legislature would require that all businesses check Social Security numbers and status. Businesses found to hire illegals would be limited to deducting from state income-tax filings no more than $600 a year for wages paid. Tough policies have gained momentum as officials grapple with the more than 200,000 illegal immigrants now living across the state. The bill is sponsored by Republican state senator and former talk radio host Chip Rogers, who took up the issue after years of seeing his phone lines light up whenever illegal immigration was raised.

On Richardson Road in Calhoun, less than a mile from a major Mohawk plant complex, an array of storefronts underscores the town's demographic shifts. There's La Sorpresa Tienda Mexicana selling BEST Mexico brand prepaid phone cards. La Clínica Santa Rosa offers medical services to Spanish speakers, and El Arroyo Mexican serves up tacos and tequila. But Bubba's Pawn Shop has closed its doors. In the heated debate over immigration reform, some in Calhoun are hoping Mohawk doesn't end up like Bubba's.

Corrections and Clarifications In "A body blow to illegal labor?" (Social Issues, Mar. 27), we wrote that Bubba's Pawn Shop had closed. In fact, it relocated to a different spot in Calhoun, Ga.

By Brian Grow

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